US­AID backs MFIs with $10m guar­an­tee

The Myanmar Times - - Business - STEVE GIL­MORE s.gil­more@mm­

US­AID kicked off a seven-year pro­gram to guar­an­tee over US$10 mil­lion in mi­cro­fi­nance loans to the agri­cul­tural sec­tor yes­ter­day, as part of a new US ef­fort to of­fer greater eco­nomic sup­port to the coun­try.

The US de­vel­op­ment agency has signed a multi-bank loan port­fo­lio guar­an­tee with five lo­cal mi­cro­fi­nance in­sti­tu­tions (MFIs), which will cover 50 per­cent of their losses for loans that qual­ify for the pro­gram, Saskia Fun­ston, a US­AID de­vel­op­ment out­reach and com­mu­ni­ca­tions of­fi­cial, told The Myan­mar Times.

The pro­gram was an­nounced on Septem­ber 14 along with a state­ment from US Pres­i­dent Barack Obama that the US would lift al­most all re­main­ing sanc­tions against Myan­mar fol­low­ing a visit from State Coun­selor Daw Aung San Suu Kyi.

The five MFIs par­tic­i­pat­ing in the guar­an­tee pro­gram are ASA Mi­cro­fi­nance, LOLC Myan­mar Mi­cro-Fi­nance Com­pany, Myan­mar De­vel­op­ment Part­ners Com­pany, Pact Global Mi­cro­fi­nance Fund, and Prox­im­ity De­signs. These five firms were those that ex­pressed an in­ter­est in join­ing and US­AID did not turn down any in­ter­ested MFIs.

As part of the pro­gram the par­tic­i­pat­ing MFIs agreed to pro­vide new lend­ing to mi­cro, small and medium sized en­ter­prises in the agri­cul­tural sec­tor with­out re­ly­ing on the groupguar­an­tee model – where groups of peo­ple serve as col­lec­tive guar­an­tors for loans.

En­ter­prise own­ers will be able to grow their busi­nesses and hire more work­ers, while the MFIs will gain the ex­pe­ri­ence of lend­ing to in­di­vid­u­als, said Ms Fun­ston.

MFIs are still free to set their own in­ter­est rates within ex­ist­ing reg­u­la­tion – roughly 2pc per month – but the guar­an­tee will help them pro­vide larger loans, Ms Fun­ston said. The typ­i­cal mi­cro­fi­nance loan is around $200, while the pro­gram will guar­an­tee loans from $400 all the way up to $5000. US­AID ex­pects the pro­gram to ben­e­fit over 5000 en­ter­prises, and that the ma­jor­ity of these will be owned by women, she added.

The lat­ter ex­pec­ta­tion is based on the fact that women are the largest users of mi­cro­fi­nance ser­vices in Myan­mar.

“The in­tent is to open a new path for busi­nesses to get ac­cess to for­mal, re­spon­si­ble fi­nance,” Ms Fun­ston said.

US­AID charges MFIs an orig­i­na­tion fee of 0.175pc for ev­ery guar­an­teed loan is­sued, and a util­i­sa­tion fee of 0.35pc of the av­er­age outstanding prin­ci­ple amount of loans guar­an­teed, Ms Fun­ston said. The orig­i­na­tion fees are likely to amount to $3600 per MFI, she added.

Photo: EPA

A farmer works on a paddy field in Nay Pyi Taw.

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